Correlation Between Ethereum and Dogecoin

Can any of the company-specific risk be diversified away by investing in both Ethereum and Dogecoin at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Ethereum and Dogecoin into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ethereum and Dogecoin, you can compare the effects of market volatilities on Ethereum and Dogecoin and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Ethereum with a short position of Dogecoin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ethereum and Dogecoin.

Diversification Opportunities for Ethereum and Dogecoin

0.84

Correlation Coefficient

Ethereum  Dogecoin

Very poor diversification

The 3 months correlation between Ethereum and Dogecoin is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Ethereum and Dogecoin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dogecoin and Ethereum is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Ethereum are associated (or correlated) with Dogecoin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dogecoin has no effect on the direction of Ethereum i.e., Ethereum and Dogecoin go up and down completely randomly.

Pair Corralation between Ethereum and Dogecoin

Assuming the 90 days trading horizon Ethereum is expected to generate 0.74 times more return on investment than Dogecoin. However, Ethereum is 1.34 times less risky than Dogecoin. It trades about -0.03 of its potential returns per unit of risk. Dogecoin is currently generating about -0.06 per unit of risk. If you would invest  307,239  in Ethereum on November 19, 2024 and sell it today you would lose (37,883) from holding Ethereum or give up 12.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Ethereum  vs.  Dogecoin

Ethereum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ethereum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Crypto's technical indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for Ethereum shareholders.

Dogecoin

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dogecoin has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's fundamental indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for Dogecoin shareholders.

Pair Trading with Ethereum and Dogecoin

The main advantage of trading using opposite Ethereum and Dogecoin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ethereum position performs unexpectedly, Dogecoin can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Dogecoin will offset losses from the drop in Dogecoin's long position.

The idea behind Ethereum and Dogecoin pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.